Stocking hardware when games are bought online: why?

Game systems are often sold at a loss, with the profit margin being made up …

Selling video game systems—the hardware itself—is an odd thing. No one makes money on the consoles. The manufacturers lose money selling the first few generations of the consoles, and retailers operate with a razor-thin margin. So why do people do it? Because they can make money on selling games and accessories. This is why so many retailers stick with bundles for launch; it's the only way to make money. So what happens if digital distribution takes off? That's a good question, and ECA President Hal Halpin has weighed in via a guest column in GameDaily.

"The next major obstacle we'll face will come as soon as the next hardware cycle, when manufacturers go to retail to pitch selling the PS4/Xbox 720/Wiii and try to get the merchant to buy and sell the razor at a loss, while not participating in the subsequent sales of the blades, digitally," he wrote. "If you were the retail buyer would you agree? Of course not."

His solution? Tie the sale of that console to the subsequent future sales of online games. That way if you buy a console at GameStop or Best Buy, that retailer will get a small cut of each game you buy through the system.

This is a fascinating problem, even if a pure digital distribution system for consoles is still years away; our shelves can still hold many more games than our hard drives can. If there is a future in which the majority of games are sold online, would retailers have any reason to stock the hardware? Is there enough of a margin to be made on extra controllers, over-priced HDMI cables, or games like Rock Band with a significant hardware aspect? Who knows.

What's clear is that going digital distribution only, or even for a majority of sales, would introduce a number of problems that no one has yet to discuss. This is just one of them.